THE GUIDE

Liquidity and market resolution

Why an attractive price may be difficult to trade, and why the written settlement rule matters as much as the event itself.

THE GUIDE
↳ THE GUIDE

Liquidity is the capacity to transact without substantially moving the price. A lively-looking screen can still have a shallow order book: the best displayed quote may be available for only a small amount. The next order may sit far away, increasing the effective cost of entering or leaving.

What to inspect in an order book

Look at the price difference between the best buyer and seller, the amount available at each level and recent matched volume, if the operator publishes it. A wide spread or small depth matters particularly near a deadline, when an exit can become difficult. “Can close early” is a feature description, not a promise of a counterparty.

Settlement is a rule, not a headline

Markets can resolve using an official publication, a specified announcement or another named source. The rules should say which date and time count, what happens on a postponement and how ambiguous outcomes are decided. Compare the same headline across two venues and you may discover that the underlying questions differ.

Disputes and exceptional events

Operators may have separate processes for cancellations, corrections, market pauses or contested settlements. Read those policies before drawing a conclusion from a headline. If an outcome source is revised after settlement, the operator’s terms, not an external commentator, determine what happens. Our how markets work guide covers the complete journey from order to resolution.

What volume can conceal

A large turnover headline is not a guarantee of deep, independent trading. Our wash-trading evidence note explains an algorithmic estimate of artificial activity in historic Polymarket data; the volume series explains how turnover is counted.

Good questions

Frequently asked

01What is liquidity in a prediction market?

It is how easily a position can be opened or closed at a price close to the displayed quote without moving the market.

02What happens when a question is unclear?

The operator applies its published rules and dispute process. Read the named outcome source and exceptional-event terms for that particular market.

References

Sources & further reading

  1. Gambling Commission: prediction markets and Great Britain (opens in a new tab)

Keep asking questions.
That is the point of a good guide.